Chevron Corporation: An Overview

1. Introduction:

Chevron is an energy company involved in chemicals operations, petroleum operations, power generation, mining operations of coal and other minerals, and energy services. Chevron Corporation is having its head quarters at 6001, Bollinger Canyon Road, San Ramon, CA 94583, U.S.A. Chevron Corporation latest fiscal year ended on 31st December, 2007.

Mr. David J. O’Reilly is the Chairman and Chief Executive Officer of the company. There are 14 directors in the Board of Chevron Corporation and the details of the board of directors are detailed below;

2. Composition of Board of Directors of Chevron Corporation

S.No

Name of the Director

Designation

1

Mr. David J. O.Reilly

Chairman and

Chief Executive Officer

2

Mr. Peter J.Robertson

Vice-Chairman

3

Samuel H. Armacost

Director

4

Linnet F.Deily

Director

5

Robert E.Denham

Director

6

Robert J.Eaton

Director

7

Sam Ginn

Director

8

Franklyn G.Jenifer

Director

9

Sam Nunn

Director

10

Donald B.Rice

Director

11

Kevin W.Sharer

Director

12

Charles R.Shoemate

Director

13

Ronald D. Sugar

Director

14

Carl Ware

Director

3. Principal Products or Services of the Chevron Corporation

Chevron is an energy company involved in chemicals operations, petroleum operations, power generation, mining operations of coal and other minerals, and energy services. Chevron’s activities includes development ,exploration and production of natural gas and crude oil ; engaged in refining activities; dealing and marketing natural gas ,crude oil and the other by-products resulting from transportation of crude oil, natural gas; and petroleum products. Further, Chevron is involved in the manufacture and sale of industrial plastics, petrochemicals commodity, and lubricant oil, fuel and additives through its chemical operations.

Chevron is one of the globe’s largest integrated energy companies. Chevron Corporation operates in the United States and in more than 180 other countries. Chevron markets its petroleum products almost in all parts of the world. The principal brands of Chevron are Chevron, Texaco and Caltex.

4. Chevron's Independant Auditor

Chevron’s independent auditor is PricewaterhouseCoopers LLP. Pricewaterhousecoopers have stated in their report dated 28th February ,2008 that Chevron’s accounting policy is in consistency with GAAP of U.S.A.[ Generally acceptable accounting principles].

Pricewatercoopers also report that Chevron’s internal control over financial reporting is a procedure deliberated to offer reasonable guarantee regarding the dependability of financial reporting and the preparation of financial statements for outsider’s purposes in harmony with generally accepted accounting principles of U.S.A.

However, the external auditor has made a qualified remark that Chevron’s inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Further, independent auditor report that projections of any assessment of efficacy to future periods are subject to the risk that controls may become insufficient because of transformation in conditions, or that the extent of compliance with the policies or procedures may deteriorate.

5. Share Price Information of Chevron Corporation

5.1 Closing Price of Shares as of 3/27/2008 $ 84.40

Details

Week ending

03/20/2008

Open Price

84.19

High Price

86.12

Low Price

81.89

Last Price

83.21

Total Volume

62,526,879

30 day volume average

13,133,230.00

52-Week Range73.96- 94.86

5.2 Chevron Corporation 10 year stock price

Date

1998

1999

2000

2001

2002

2003

2004

2005

2007

2008

29th March

41.50

44.81

44.25

43.21

45.14

32.63

42.67

57.89

58.63

84.50

5.3 Latest Dividend details:

Details

Year 2007

Year 2006

Cash Dividend per Share

$2.26

$2.01

5.4 Common Stock Price Range -High Amount in $

Year 2007

Year 2006

4th quarter

3rd quarter

2nd Quarter

1st Quarter

4th quarter

3rd quarter

2nd Quarter

1st Quarter

94.86

94.84

84.24

74.95

75.97

67.85

62.88

62.21

5.5 STOCK PRICE AND VALUATION

(Data as of 03/27/2008)

Market Cap (mil)

175,272

Shares Outstanding (000's)

2,076,680

52-Week Range

73.96 - 94.86

7-Day Average Closing Price

84.22

30-Day Average Closing Price

86.05

200-Day Average Closing Price

88.30

Dividend Per Share (TTM)

2.20

PE Ratio

10.24

Earnings Per Share (TTM)

8.24

Last Price

84.40

Last Day Range

84.27 - 86.95

6. Number of Employees

Chevron had provided employment opportunities for approximately 65,000 employees which include about 6,000 service station employees as of December 31, 2007. Further, roughly about 31,000, or 49%, of the company’s employees were given employment opportunities in U.S.A.alone.

7. Industry Situation and Company Plans

Many factors influence the Petroleum industry’s profitability and operations and individual petroleum companies have no control over some of these factors. Governmental policies, predominantly in the sectors of energy, taxation and the environment have a momentous effect on activities of petroleum companies. Supply and demand for petroleum commodities determine prices for crude oil and natural gas, petrochemicals and petroleum products.

Nonetheless, some governments enforce price checks on refined products such as diesel fuel or gasoline. Further ,Organization of Petroleum Exporting Countries (OPEC) are the world’s monopoly producers of crude oil, and their production quantum’s are a key factor in determining worldwide supply.

Strong competition exists in the petroleum and petrochemical industries. Chevron competes with major global petroleum companies, as well as national and independent petroleum companies. Some of the top competitors of the Chevron Corporation are Exxon Mobil Corp, BP Plc and Royal Dutch Shell Plc.

8. Chevron Future Strategies

Chevron’s main aim is to build value and accomplish continued financial returns from its operations that will help it to surpass its competitors. As a fundamental for accomplishing this goal, the company has formulated the following strategies:

  • To enhance base-business returns and selectively nurture, with a spotlight on integrated value creation.
  • To increase profitably in prime areas, generate new legacy positions and to commercialize the Chevron’s natural gas equity resource base.
  • The company also wishes to invest in new renewable-energy technologies, with an aim of occupying profitable places in imperative renewable sources of energy.
  • Further, Chevron also plans to invest in human resources to fulfill the company’s objectives, to attain technological superiority to accomplish superior growth and performance.
  • To concentrate on cost control, profitable growth and capital stewardship.

The chemicals activities, downstream and upstream, of the Chevron and its equity affiliates are widely distributed geographically, with operations in South America, North America, Europe, Africa, Asia, Australasia and the Middle East.

Standard Oil Company (California) was formed in 1906. Later, it was incorporated in Delaware, Jan. 27, 1926. Further, Standard Oil Company name changed to ChevronTexaco Corp. on Oct. 10, 2001. Current name was espoused on May 10, 2005

9. Accounting Polices

Chevron’s Consolidated Financial Statements are prepared in tune with generally accepted accounting principles of U.S.A. These demand the employment of assumptions and estimates that influence profits and expenses, liabilities and the assets, stated in the financial reports, plus sums shown in the foot notes thereto, including revelation and discussion of contingent liabilities. Even though the company employs its paramount opinions and estimates, real results could vary from these guesstimates as future confirming events happen.

9.1. Revenue Recognition

Revenues connected with sale revenue of coal, natural gas, chemicals products, crude oil, and petroleum, and all other resources are reported when title is transpired to the customer, net of royalties, discounts, and allowances, as appropriate. Revenues from production of natural gas from properties in which Chevron has an interest with other producers are normally accounted on the fundamental of the Chevron’s net working interest.

9.2 Cash

While real cash flows are accounted directly, the standardized measure of discounted future net cash flows, related to the preceding proved oil and gas reserves, is derived in conformity with the requirements of FAS 69. Estimated future cash inflows from production are calculated by charging year-end prices for oil and gas to year-end quantities of estimated net proved reserves

9.3 Short Range Investments

All short-range investments are sorted out as available for disposal and are in extremely liquid debt securities. These investments forms the part of the Chevron’s cash management portfolio and have original maturity values of three months or less are stated as “Cash equivalents.” The remainder of the short-term investments is stated as “Marketable securities” and is marked-to-market, with any unearned losses or gains incorporated in “Other wide-ranging income.”

9.4 Inventories 

Crude oil, Petroleum products, and chemicals are normally reported at cost, employing a Last-In, First-Out (LIFO) method. In summative, these costs are below market. “Supplies materials, and other” stock-in-trades normally are reported at average cost.

9.5 Plant and Fixtures, Equipment, and Properties

The thriving efforts technique is employed for natural gas and crude oil discovery and production processes. All costs for related plant and equipment, development wells, assured mineral interests in crude oil and natural gas properties, and related asset retirement obligation (ARO) assets are accounted. An exploratory well that was found a sufficient quantity of reserves to justify its completion as a producing well and the company is making sufficient progress assessing the reserves and the economic and operating viability of the project.

10. Ratio Analysis

Chevron Corporation

Financial Year Ending as on

Profitability Ratios

12/31/2007

12/31/2006

12/31/2005

Return on Equity (%)

24.24

24.86

22.5

Return on Assets (%)

12.56

12.92

11.2

Return on Investment

38.08

40.11

32.84

EBITDA of Revenue (%)

18.5

18.79

15.7

Operating Margin (%)

14.56

15.22

12.71

Pre-Tax Margin

14.56

15.22

12.71

Net Profit Margin (%)

8.46

8.16

7.11

Effective Tax Rate (%)

41.9

46.4

44.04

EPS [Diluted]

8.77

7.80

6.54

Liquidity Indicators

12/31/2007

12/31/2006

12/31/2005

Quick Ratio

0.9

1.02

1.13

Current Ratio

1.17

1.28

1.37

Working Capital/Total Assets

0.04

0.06

0.07

Debt Management

12/31/2007

12/31/2006

12/31/2005

Current Liabilities/Equity

0.44

0.41

0.4

Total Debt to Equity

0.09

0.14

0.21

Long Term Debt to Assets

0.04

0.06

0.1

Asset Management

12/31/2007

12/31/2006

12/31/2005

Revenues/Total Assets

1.48

1.58

1.58

Revenues/Working Capital

39.6

26.61

21.25

10.1 Rate of Return On Total Assets

This ratio helps to find out how management of income has been able to generate from each dollar’s value of a company’s total assets. This ratio also helps to find out how effective the management of the company is .Chevron Corporation is having around 13% for the last two years .It implies that Chevron Corporation is able to generate about 13% in revenue out of the total investment made in the assets of the company which is a fair metric.

10.2 Current Ratio

An excessively high current ratio means that the company has invested too much in current assets compared to its current obligations. A company with a 2:1 or higher current ratio is generally thought to be a good credit risk in the short run. This ratio helps to find out the ability of a company to pay back its current liabilities with its current assets. This ratio assists to gauge the efficacy of a business operating cycle or its efficacy to change its products into cash. Chevron Corporation’s current ratio is hovering around 1.20 for the last two years which is a good metric.

10.3 Quick Ratio

A quick ratio helps to gauge a company’s short-term liquidity. This ratio gauges a company’s efficacy to pay its short-term financial obligations. Chevron is having a positive quick ratio in the last year. However, it has a negative ratio in the year 2007. This implies that Chevron’s liquidity is to be improved.

10.4 Profitablity Ratio

Chevron Corporation’s profitability ratio is strong .Return is judged by assessing earnings relative to the level and sources of financing. Profitability is also relevant to solvency. As Chevron is having a positive profitability ratio, this reflects on management because managers are ultimately responsible for operating efficiency.

10.5 Earning Per Share [EPS]

This ratio helps to know how much each share of a company has earned .This is a good indicator of the health of the company and for making investment decisions. Chevron’s EPS is hovering around $ 8 which is a good metric for making investments in Chevron corporation’s shares.

11. Conclusion

Chevron Corporation is already celebrated its century and is having a strong fundamentals. It has very good financial metrics. It has a consistent EPS and other primary ratios are very strong. The share value has grown almost more than 100% in the past ten years and has maximized shareholder’s wealth. I strongly recommend to buy Chevron Corporation’s share for long standing holding so that investors would benefit in the long run as Chevron has a lion’s share in the oil and gas industry all round the world.